CBN Slashes Interest Rate to 6 Per cent
The Central Bank of Nigeria (CBN) yesterday reduced the monetary policy rate (MPR) by 200 basis points from eight per cent to six per cent. The apex bank has therefore introduced a corridor of interest rates of +/- 200 basis with the rate on the standing lending facility at 8.00 per cent and the rate on the standing deposit facility at 4.00 per cent.
Also yesterday, the CBN began a regime of liberalized foreign exchange market, removing all restrictions imposed recently on foreign exchange transactions and therefore increased the net open position limit for banks to five per cent of their capital base.
The apex bank had in May announced that it was removing restrictions from forex activities and returning to the regime of liberalized forex market within three months.
At his maiden briefing on the Monetary Policy Committee (MPC) meeting yesterday in Abuja, CBN Governor, Mr. Sanusi Lamido Sanusi, explained that the committee slashed the interest rate having realized that the spread between the lending and deposit rates was higher than the current interest rate.
“In the first few days of July, the inter-bank call rate ranged from 21 to 22 per cent. The weighted average open buy back rates in April, May and June were 7.1, 7.2 and 7.7 per cent, respectively. The average spread between the call rates and the rates on secured transactions has been very high at 1090 basis points in June, 600 basis points in May and 540 basis points in April.
“The average prime lending rate rose from 19.34 per cent in April to 19.53 per cent in May 2009, while the average maximum lending rate declined from 23.17 per cent in April to 22.86 per cent in May. The weighted average rate on all categories of deposits rose from 5.98 per cent in April to 6.13 per cent in May 2009,” he said.
Sanusi said in order to ensure that the inter-bank market was rendered efficient and to reduce counterpart credit risk, the CBN would provide a temporary guarantee from July 2008 to March 31, 2010.
According to him, “the Bank would also impose a limit on the total volume of gross inter-bank loans extended to an individual institution. A guarantee fee will be charged if the guarantee crystallizes at five percentage points above the interest rate at which the loan was contracted.”
“Coinciding with the above and in order to foster financial stability,” the CBN governor said “banks are expected to publish their accounts with sufficient disclosure to allow for risk assessment and analysis by creditors and investors by the end of March 2010.”
He noted that, “in view of the fact that the high lending rates would not be consistent with the objectives of growth, inflation control and financial stability, the CBN would encourage banks to bring down the lending rates in line with the economic realities.
“It is also important that the yield curve is normal with long term yield rates carrying reasonable premium over the short term market rates.”
However, Sanusi said in introducing the liberalized forex market, all class ‘B’ Bureaux de Change may now participate directly in the CBN window. But he pointed out that “only those with valid licenses are eligible,” and they will be required to make a caution deposit of $20,000 each.
Class ‘A' BDC’s capital, he added, had been reduced from N500 million to N250 million even as he also pointed out that, “allocation of foreign exchange will differ in magnitude between Class ‘A’ and ‘B’ BDCs given the different levels of capitalization.”
He said the Wholesale Dutch Auction System (WDAS) would replace the Retail Dutch Auction System (RDAS).
He disclosed that, “the MPC noted with satisfaction that recent measures to stabilise the Naira exchange rate have posted some positive outcomes. The Naira exchange rate has stabilised at the RDAS in recent weeks, while in the other segments, the rates have appreciated, thereby narrowing the arbitrage opportunities.”
He, however, pointed out that the premium over the RDAS rate had remained significant. “The present situation offers an opportunity to further narrow the gap between the two rates by measures aimed at further liberalising the inter-bank foreign exchange market,” he said.
Also, Sanusi said foreign exchange reserves as at July 3, 2009 slumped to $43.19 billion (provisional) compared with $53 billion at the end December 2008.
He explained that, “the decline in reserves mirrored mainly the relative downward drift in international crude oil prices from the levels reached in mid-2008 and the slowdown of other foreign exchange inflows.”
However, he added, “the decline in reserves is likely to moderate in the next two quarters owing to the expected rise in international crude oil demand arising from recent reports of improvement in the recovery prospects in the US and other developed countries and in the relatively favorable outlook for growth in some important emerging economies.”
The Central Bank of Nigeria (CBN) yesterday reduced the monetary policy rate (MPR) by 200 basis points from eight per cent to six per cent. The apex bank has therefore introduced a corridor of interest rates of +/- 200 basis with the rate on the standing lending facility at 8.00 per cent and the rate on the standing deposit facility at 4.00 per cent.Also yesterday, the CBN began a regime of liberalized foreign exchange market, removing all restrictions imposed recently on foreign exchange transactions and therefore increased the net open position limit for banks to five per cent of their capital base.
The apex bank had in May announced that it was removing restrictions from forex activities and returning to the regime of liberalized forex market within three months.
At his maiden briefing on the Monetary Policy Committee (MPC) meeting yesterday in Abuja, CBN Governor, Mr. Sanusi Lamido Sanusi, explained that the committee slashed the interest rate having realized that the spread between the lending and deposit rates was higher than the current interest rate.
“In the first few days of July, the inter-bank call rate ranged from 21 to 22 per cent. The weighted average open buy back rates in April, May and June were 7.1, 7.2 and 7.7 per cent, respectively. The average spread between the call rates and the rates on secured transactions has been very high at 1090 basis points in June, 600 basis points in May and 540 basis points in April.
“The average prime lending rate rose from 19.34 per cent in April to 19.53 per cent in May 2009, while the average maximum lending rate declined from 23.17 per cent in April to 22.86 per cent in May. The weighted average rate on all categories of deposits rose from 5.98 per cent in April to 6.13 per cent in May 2009,” he said.
Sanusi said in order to ensure that the inter-bank market was rendered efficient and to reduce counterpart credit risk, the CBN would provide a temporary guarantee from July 2008 to March 31, 2010.
According to him, “the Bank would also impose a limit on the total volume of gross inter-bank loans extended to an individual institution. A guarantee fee will be charged if the guarantee crystallizes at five percentage points above the interest rate at which the loan was contracted.”
“Coinciding with the above and in order to foster financial stability,” the CBN governor said “banks are expected to publish their accounts with sufficient disclosure to allow for risk assessment and analysis by creditors and investors by the end of March 2010.”
He noted that, “in view of the fact that the high lending rates would not be consistent with the objectives of growth, inflation control and financial stability, the CBN would encourage banks to bring down the lending rates in line with the economic realities.
“It is also important that the yield curve is normal with long term yield rates carrying reasonable premium over the short term market rates.”
However, Sanusi said in introducing the liberalized forex market, all class ‘B’ Bureaux de Change may now participate directly in the CBN window. But he pointed out that “only those with valid licenses are eligible,” and they will be required to make a caution deposit of $20,000 each.
Class ‘A' BDC’s capital, he added, had been reduced from N500 million to N250 million even as he also pointed out that, “allocation of foreign exchange will differ in magnitude between Class ‘A’ and ‘B’ BDCs given the different levels of capitalization.”
He said the Wholesale Dutch Auction System (WDAS) would replace the Retail Dutch Auction System (RDAS).
He disclosed that, “the MPC noted with satisfaction that recent measures to stabilise the Naira exchange rate have posted some positive outcomes. The Naira exchange rate has stabilised at the RDAS in recent weeks, while in the other segments, the rates have appreciated, thereby narrowing the arbitrage opportunities.”
He, however, pointed out that the premium over the RDAS rate had remained significant. “The present situation offers an opportunity to further narrow the gap between the two rates by measures aimed at further liberalising the inter-bank foreign exchange market,” he said.
Also, Sanusi said foreign exchange reserves as at July 3, 2009 slumped to $43.19 billion (provisional) compared with $53 billion at the end December 2008.
He explained that, “the decline in reserves mirrored mainly the relative downward drift in international crude oil prices from the levels reached in mid-2008 and the slowdown of other foreign exchange inflows.”
However, he added, “the decline in reserves is likely to moderate in the next two quarters owing to the expected rise in international crude oil demand arising from recent reports of improvement in the recovery prospects in the US and other developed countries and in the relatively favorable outlook for growth in some important emerging economies.”
Courtesy: Thisdayonline.
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